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BANK FRAUD AND COMMERCIAL BANKS
IN NIGERIA:
A CASE STUDY OF SOME SELECTED
BANKS (1982-2004).
ABSTRACT
This study
attempts to look at the effect of fraud in commercial banks performance. It
does so by having a case study of some selected commercial banks within rivers
state. The purpose is to know the extent and its causes of fraud in the
commercial banking sub-sector and its subsequent effect on banking operations
and its profitability as a whole. Data were collected from (16) commercial
banks within rivers state. These were selected by employing simple percentage
procedure through the administration of questionnaires. Data were collected and
being computed and analyzed. The major findings of this study revealed that the
main causes of fraud in commercial banks is urge for quick wealth acquisition,
and for internal security of the bank, contributing their own quota. Bu it was
discovered that fraud could be reduced if not eradicated. From the industry,
some recommendations were made in the study to this effect.
TABLE OF CONTENTS
Title Page i
Certification ii
Abstract iii
Dedication iv
Acknowledgment v
Table of Contents vi
CHAPTER
ONE
1.1 Introduction 1
1.2 Statement
of the problem 9
1.3 Purpose
of the study 10
1.4 Research
questions 11
1.5 Statement
of hypothesis 11
1.6 Significance
of study 12
1.7 Limitations
of the study 13
CHAPTER
TWO: LITERATURE REVIEW
2.1 Fraud 14
2.2 Definition
of fraud 14
2.3 Types
of fraud in commercial banks 15
2.4 Causes
of fraud in commercial banks 18
2.5 The
nature of commercial banks 19
2.6 Effect
of fraud on commercial banks 21
2.7 Measures
for controlling frauds in commercial banks 22
CHAPTER
THREE
3.1 Research
design 27
3.2 Source
data 27
3.3 Sampling
techniques 28
3.4 Method
of data analysis 29
3.5 Questionnaire
design 30
CHAPTER
FOUR
4.1 Data
presentation 31
4.2 Analysis 32
4.3 interpretation 35
CHAPTER
FIVE
5.0 Introduction 39
5.1 Summary 39
5.2 Findings 40
5.3 Conclusion 42
5.4 Recommendation 43
References
Questionnaire
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Bank
fraud and commercial banks in Nigeria: a case study of some selected banks
(1982-2004). The activities of banking industry in supporting or promoting
growth, stability and development of the monetary system in Nigeria, which led
to the introduction and establishment of the first commercial banks in the year
1892.
According
to Emeka et al (1998), the existence of the first commercial bank short live
because of trade recession, which hit Lagos as a result of local uprising
between the Ijebus and the Egbus in March 1982. Commercial banking in Nigeria
predates central banking and provides the foundation stones in the Nigeria
financial system, in general, as far back as the late nineteenth century.
Chinedu et al (1998:3).
According
to Dr.H.A. Ajie and Ezi C.T. Financial institutions and markets, they said
commercial bank primarily exists to fuel, propel and service economic
development. According to Dr. H.A. Ajie and Co, many bank were established and
short lived due to some great depression that occur in 1929.
According
to Dr. Ajie, the rising incidence of frauds in the banking sector. (commercial
banks) has cause a major factor that tends to cause a slur on the banking
profession. With the all the ownership structure of commercial banks in the
country, which metamorphosed into indigenous participation following the
indigenization policy of 1972 and 1974. As a rule as the then, external
ownership of any bank in Nigeria did not exceed 40%. This requirement was
revoked by the late Abacha’s administration during the 1996/1997 fiscal
periods. As a result, foreign investors can own up to 100% of the share of a
bank. As universal banking system was introduced during 2001 fiscal period and
capital base of banks to one million, more foreign participation is currently
being recorded.
However,
in spite of the lofty ideas and objectives put forward in the establishment of
the commercial banks, there has been a growing incidence of fraud in the
banking sector. Fraud itself, result in huge financial losses to financial
institutions and their customers depletion of shareholders’ funds and capital
base, as well as loss of confidence in financial institution.
According
to Dr. Ajie, situation has reached an alarming proportion that the FGN has set
up a national committee on frauds in addition to the current campaign against
corruption by the Obasanjo administration.
In
a recent report of the Nigerian deposit insurance corporation (NDIC) published
in the punch newspapers, editorial column of Monday August 14, 2000. It was
asserted that banks generally in the country lost N2.73million to fraud and
forgery cases in 1999, compared with N692.25million in 1998, an increase of
2.04 billion or N294.37 percent. In all, about 596 bank employees were involved
in the fraud and forgeries.
The
Nigerian deposit insurance corporation (NDIC) report further revealed that, the
most prevalent of the causes has to do with forged cheques, unauthorized loans,
positing of fictitious credits, suppression of cheque and authorized transfer
and withdrawal of customers’ funds.
The
results of the incidence are damaging. The effect of fraud is so much that it
leads to unwarranted losses to the banks and put the management of each
institution on its toes while expanding hard earned resources engaging in fraud
prevention and detection.
Most
unfortunately, every incident of commercial bank fraud literally chip-off a bit
of the public confidence in the orthodox financial institution, especially
commercial banks that normally transact business with small, medium and large scale
industries.
Bankers
are generally respected in the society because of their honesty, carefulness,
dedication and faithfulness. The impact of staff/management sharp a practice is
that, a respect and honour normally due banker has reduced considerably.
Fraud
has been defined as any deception practiced to heat or to deceive another to
his own detriment or to the detriment of another, loss or injury, while the
perpetrator has a clear knowledge of his deliberate falsehood, deception of
advantage over his innocent or unsuspected victim “Admadu” (1990:104).
Fraud
itself can be seen as a conscious premeditated action or a person or group of
persons with the intention of offering the true and or selfish personal
monetary gain. Fraud means, as act of dishonesty, deceit and imposture. In
general, the action takes the form forgery, falsification of documents and
unauthorized signatories to outright theft.
According
to Kirkpatrick (1985) “a person who pretends to be something that he is not is
a fraud, a snare and the deceptive trick, cheat and a swindler. Fraud can be
committed by employees, customers or ushers, operating independently or in
conspiracy with other inside or outside the financial institution.
The
employees, as well as clients of firms, other than bankers, also engage in one
form of fraud or the other, all over the world, example the demise of bank of
credit and commerce international (BCCI) London is a recent example. It can’t
be strictly speaking, said to be an ordinary thing expected of human behaviours.
Its prevalence in all societies of the world including the socialist societies
of the world, this shows that, it is part of basic human behaviour.
According
to Desmond Fitzgerlad (1986:112) although the existence of fraud and other up
professional practices in banks are not uncommon or unexpected phenomenon, it
becomes more disturbing, because of all the negative tendencies, its seems to
unload on developmental needs of the commercial banks and economics of the
third world countries. The banking sector is worried about the increasing rate
of fraud, due to its damaging effect of the act on the health and corporate
existence of the commercial banks/financial institutions. Fraud in Nigerian
commercial banks has been on increase. Another reason why the industry worry
about fraud is that, it varies very widely in nature, character, and
methodology. The control of an identified scan possible would give birth to
another, which could even be more sophisticated and complex. Thus, each case
can be a variant of another and undoubtedly an instructive study in human
negative use of ingenuity and endowment.
Fraud,
it is an enemy to all concerned with the growth and development of our
commercial banks. In such state of affairs, various commercial banks management
have been pondering on whom amongst them, top, medium or lower management staff
is involved in the fraud, what is the impact of fraud on such related banks
over the years and why is it perpetrated?
And
to look some causes of fraud. They can be grouped into two classes; there are
institutional factors and environmental/societal factors. The institutional
factors are those traceable to the internal environmental/societal factors are
those traceable to the influence of the environmental/societal in the banking industry?
Bad/poor
management, staff negligence, faulty recruitment policy system, poor security,
use of sophisticated accounting machine, poor book keeping, frustration,
inadequate infrastructures. Accumulation of annual leaves, delays in processing
documents, inadequate knowledge of individual staff, faults account opening
procedures, negligence by customers, lapses in the management control of
corporate customers. Unregulated spending power, absence of dormant, and
protection etc.
Source
1. Bank Fraud: causes and prevention and
supernal analysis.
2. The Nigeria bank, July-December 1994.
The
low level of poverty prevailing in the society and the accepted value system
whereby, wealth is glorified irrespective of its source encourage bank frauds.
Unbridled ambition to keep up with the “Jones” impact of extended family
commitment, and the run-away inflation prevailing in the economy, are all
causes of both directly led to the fraudulent practices.
1.2 STATEMENT OF PROBLEM
According
to Baridan (1995:22) the statement of the problem in research writing
constitute the corner stone upon which the entire research plan is based;
therefore, it is an important step in the total process of research.
Ideally,
commercial bank as an industry in Nigeria is expected to be one of the most
profitable within the economy. A higher performance could have been attained in
terms of their returns and obligations to the society as a whole, which one is
confidence building in other to perform a leading role in its joy to improving
Nigerian financial standard or system.
The
impacts of fraud on commercial banks however, have led to the sub-optional
performance in the sector, and this issue has cause a lot of problems
particularly in our commercial banks, making it the most intractable and monumental.
The extent and magnitude of bank fraud in Nigeria has been on increase. It is
appropriate to have a feel of the extent of lost through bank fraud in Nigeria
in other to appreciate the trade, the canker worm has been wrecking on the
economy.
1.3 PURPOSE OF THE STUDY
The
primary objective of this work is to unveil the impact of fraud in Nigerian
commercial banking sectors over the years as well as finding out practical or
practicable means of reducing their incidences. To achieve this aim, the following
secondary objectives have been specified.
1. To
identify the effect of fraud on commercial banks over the years.
2. To
identify the various types of fraud perpetrated in commercial banks.
3. To
identify the various means employed in defrauding commercial banks.
4. To
determine the effect of fraud on the banking business generally.
5. To recommend
measures for reducing the incidence of fraud in commercial bank.
6. To identify
the means through which the commended measures can be effectively implemented.
1.4 RESEARCH QUESTIONS
1. What are the major causes of fraud in
commercial banks?
2. What
are its effects on commercial banks and their operations?
3. How
has bank fraud affected commercial banks performance level?
4. How has
it affected customer patronage of their sources?
5. What is
its relationship with commercial banks?
1.5 STATEMENT OF HYPOTHESIS
1. There
is a positive relationship between fraud and commercial bank patronage.
2. There
is a significant relationship between commercial banks fraud and commercial
banks profitability.
3. There
is a positive relationship between the level of fraud in commercial banks and
high societal acquisitive instinct.
1.6 SIGNIFICANCE OF THE STUDY
Fraud
is a negative phenomenon and a big threat to the Nigeria commercial banking
system, whatever forms it takes, it is capable of denting the corporate image
of the banking industry and have impairing public confidence in the system.
Considering the fact that confidence is the corner stone of banking, it will
amount to becoming an enviable enterprise that cannot survive, should it loss
such confidence?
This
study provides a comprehensive and instructive knowledge of commercial bank
fraud. Measures recommended would assist bankers, investors and in future
studies to improve their knowledge on the subject matter. It will assist the
management of commercial banks in adopting more effective and efficient control
measures aimed at reducing the incidence/effect of fraud.
1.7 LIMITATION OF THE STUDY
Every
research work has certain limitations affecting the actualization of the
desired objective. Thus, this research work cannot be an expectation. Given the
very critical and sensitive nature of the study, a number of problems that
could hinder a successful completion are envisaged. This includes time,
finance, and respondents not willing to give vital information, considering
then ass secret and confidential to the corporate existence of the commercial
bank.
The
research work is being restricted to commercial banks in Rivers State. Since the
function and objectives for which the banks have been established are generally
the same, it is the view of this research, which helps in limiting the scope to
commercial banks within some selected banks in rivers sate.
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